Regional Unemployment Disparities: An Evaluation of Policy Measures

This paper analyses the efficacy of regional and federal government policies in reducing inter-regional unemployment disparities. We use as our framework a two-region general equilibrium model with a given freely-mobile supply of labour. We assume interregional migration to occur in response to inter-regional utility differentials. Each region has households, firms and a regional government. In addition to regional governments, there is a federal government. The firms in a region use a single factor, labour, to produce a single good which we assume to be different to that produced in the other region. It is supplied to households and to the regional government in the form of payroll taxes. Households consume some, trade some with households in the other region and give some up to the federal government as income tax. Firms and households bargain over wages and firms then choose employment to maximise profits. The resulting equilibrium will generally not be a full-employment one. We simulate a linearised numerical version of the model. We examine seven alternative policies, six carried out by a regional government and one by the federal government. In the first group there are traditional tax/expenditure polices as well as policies which might be seen as attacking the natural rate of unemployment: changes in unemployment benefits, changes in union power, changes in the labour force and changes in labour productivity. The federal government policy is a regionally- differentiated fiscal policy. Contrary to expectations, many policies which have traditionally been recommended to alleviate unemployment, are found, in fact, to exacerbate the unemployment problem.

Population scenarios and policy implications for South Mediterranean countries, 2010-2050

Four population scenarios were derived describing changes in indicators of demographic behaviour should people come to live in different future political-economic contexts. Focus of this policy brief is on expected trends in (1) population growth at regional and national levels, (2) working age populations in view of demographic dividend potential for the economy, and (3) population of elderly persons in view of the future financial burden this group might impose on societies. Results show that different economic-political development scenarios do have large effects on population growth, at least up to 2030). This is due to the socalled population momentum effect in the relatively young age-structures of most SMCs. In the short term, up to 2030, and depending on which economic-political unfolds, SMCs expected to grow from 280 million people to a figure between 362 and 349 million people. Thus, in a period of about 20 years SMC populations are expected to grow with a figure between 69 and 83 million. In that same period, EU27 populations will grow with 21 million only from about 500 to 521 million people. Between 2030 and 2050, additional population growth is foreseen in SMCs, between 48 and 62 million people, while EU27 populations are expected to grow with only 4 million during that period. SMCs appear to vary widely regarding demographic transition profiles so that demographic dividend potentials also vary. For instance, Egypt has considerably demographic dividend potential ahead in the coming decades as working age population shares will rise from 63% (2010) to a peak level of about 68% by 2045. In Turkey though, the working age population share is already high (68%) and near the expected peak level of 69% (by 2025) after which a decline sets in. The window of opportunity -the period when working age population shares rise to peak levels and remain at a high level- is starting to close for Lebanon and Tunisia though levels will remain high up to 2035 after which a decline sets in due to ageing of these populations. Ageing implies an increase of the economic burden to economies as elderly generally do not contribute any longer to economies as they did during their working age years. Old-age dependency ratios, the share of elderly in relation to the working age population, are still low compared to EU27 ratios but will increase after 2035. Should SMCs remain politically, economically and environmentally fragile in the coming decades, these lower dependency ratios will impose a relatively higher social and financial burden to societies than the high dependency ratios in EU countries

Regional Equality and National Development in China: Is There a Trade-Off?

Despite high economic growth over the past 30 years, China’s substantial and persistent regional disparities have been the subject of continuing concern to policy makers, as well as the target of a wide variety of policies. An important issue in the policy debate about whether and how best to attack these disparities is whether measures designed to improve regional equality come at a cost to national development, i.e. whether there is a trade-off between the level of national output and the equality of its distribution across the regions. There is little analysis of this issue in the literature. We help fill this gap by setting up a two-region model designed to capture some of the salient features of the Chinese economy. We subject this model to a number of policy shocks and assess the effects on regional disparities in per capita output, on the one hand, and on aggregate output on the other to investigate the trade-off. We also consider income and welfare as alternatives to output. We find that disparities in per capita output, income and welfare often move in different directions so that it is important to specify which disparity is being targeted. Moreover, since both disparities and aggregate outcomes are endogenous, how they move together depends on the nature of the shock driving the model. Thus, some policies designed to reduce disparities face a trade-off and others do not. Only a reduction in internal migration restrictions unambiguously reduces all three disparity measures and increases aggregate output, incomestock prices, output, China

The US-China Trade Imbalance: Will Revaluing the RMB Help (Much)?

The large US-China trade imbalance is a common cause for concern and regularly blamed on the undervaluation of the RMB. We estimate a simple model of the trade balance and simulate the long-run effects on the trade balance of RMB revaluations in the range of 10-50%. We find that improvements in the trade balance following plausible revaluations are likely to be modest.

Reducing Regional Disparities in China: An Evaluation of Alternative Policies

Regional disparities in output per capita and income in China are large and persistent. They have been the subject of considerable concern to policy-makers at the highest level for decades, yet little is known about the effectiveness of various alternative policies which may be used to combat them. In this paper we address this issue by analysing the effectiveness of a range of policies by both regional and central governments. We use a small model with various features of the Chinese economy: two regions (the interior and the coast), two industries (agriculture and manufacturing), inter-regional capital mobility, internal migration subject to the hukou system of household registration and some features of the Chinese tax and expenditure system. The model is calibrated to Chinese data and simulated to analyse the effects of a number of policies on a range of variables but focussing on per capita output disparities and welfare. We find that a policy reducing internal migration costs is effective in reducing the per capita output gap but does so at a substantial cost to the coast. Policies which improve agricultural productivity in the interior region are most likely to both reduce the gap and make both regions better off. Changes in government consumption expenditure, central government fiscal redistributions and tax cuts, on the other hand, are less effective and have their long-run effectiveness reduced by migration.regional disparities, China, numerical modelling, hukou

Population scenarios 2010-2050 for MED11 countries: a MEDPRO WP3 research report

The focus of this report is on population and development scenarios of MED11 countries for the period 2010-2050. More specifically, we address (1) design aspects of the MEDPRO population and development scenarios, and projection methodology, (2) main results of population scenarios for MED11 countries, including comparison with results of the UN medium variant projection and EUROSTAT EU-27 population projection, and (3) we reflect on the implications of the scenarios for policy and planning, and elaborate on what the effect of the current dramatic political and societal events in the region might be on the results of our population scenarios. Section 2 describes the MEDPRO framework for development scenarios. Sections 3 and 4 describe how demographic behaviour might respond if people in MED11 countries would live in four different macro-economic and political contexts. Focus in section 3 is on developing story lines, i.e. qualitative population scenarios, about how demographic behaviour may change if the development context change, and we operationalize these in the form of quantitative population scenarios. In section 4 we briefly describe the population projection methodology and we present and analyse main results of the population scenarios 2010-2050 for MED11 countries. In section 5 we discuss address the implications of the population scenarios and reflect on the plausibility of the results in light of the dramatic political transitions in the region.

The Regional Economic Effects of Immigration

The effects of immigration on the host country are pervasive and long-term. It is not surprising that they have been extensively analysed, not least the economic effects which have been the subject of both theoretical and empirical research. While some of the empirical research has had a regional dimension, this has often been incidental to the analysis of the labour market – the effects of immigration on wages and employment prospects of the native-born depend on the regional migration response. In contrast, there has been little analysis of the general effects of immigration on regional economies per se. This paper contributes to the filling of this gap by constructing a small two-region computable general-equilibrium (CGE) model which is used to analyse the effects of various immigration shocks on regional variables such as output, employment, the labour force, unemployment, wages and welfare. We simulate the effects of different types of immigration shocks and distinguish between short-run and long-run effects. We also consider the effectiveness of government intervention designed to alleviate the adverse regional effects of immigration including the possibility that regional governments behave in a welfare-maximising way.immigration, regional, labour market

An Analysis of the Effects of Fiscal Equalisation in a Two-Region Simulation Model

This paper is concerned primarily with the economic and welfare consequences of federal redistributive grants. We use a model which has two regions, each with households, firms and regional governments as well as a federal government. The households, firms and regional governments are all optimizers – households maximize utility, firms maximize profits and we assume that regional governments are empire-builders in that they choose their expenditure and tax levels so as to maximise total expenditure – the size of their empire. Labour is free to move between regions in response to utility differences and does so until such differences have been eliminated. Inter-regional migration, interregional trade flows and federal government redistribution are the main sources of interconnectedness between the two regions. The model is linearised in log-differences and simulated using a calibration based on Australian state-level data. We find that the welfare effect of intergovernmental transfers is trivial but that all other variables of interest change substantially – consumption, employment, prices, taxes, wages, output and government expenditure. Finally, the signs of the effects of a federal transfer are not affected by the empire-building behaviour of regional governments although the magnitude of the effects is generally dampened.

Killing the Goose that Lays the Golden Egg: a Time-Series Analysis of Institutional Change and Economic Growth in Hong Kong

This paper examines how the rule of law and democratic accountability have affected Hong Kong’s GDP growth rate in the past 20 years. We find that democratic accountability has deteriorated substantially since the changeover of sovereignty in 1997, while the rule of law has remained strong and stable. Empirical results from ARDL bounds tests show a strong positive long-run relationship between growth and democratic accountability, and Granger causality tests reveal that democratic accountability causes the growth rate of GDP in the short run. These conclusions are robust to controlling for the effects of investment and the Asian financial crisis in 1997. Our results suggest that the deterioration in democratic accountability following the handover in 1997 has come at the expense of a considerable decline in economic growth, and controverts popular arguments in Hong Kong that improving democratic accountability will harm economic growth.Institutions, growth, democratic accountability, rule of law, Hong Kong